Innofactor Oyj : Plc's Interim Report for January 1–September 30, 2020 (IFRS)

Innofactor Plc Interim Report October 27, 2020, at 9:00 Finnish time

Innofactor's net sales and operating margin on Q3 were better than in the comparison period - the operating margin for entire year 2019 was exceeded in the first 9 months of 2020

July-September 2020 in brief:

• The net sales were approximately EUR 14.0 million (2019: 14.0), which shows an increase of 0.3%
• The operating margin was approximately EUR 1.6 million (2019: 1.5), which shows an increase of 1.6%
• The operating profit was EUR 0.4 million (2019: 0.3), which shows an increase of 58%
• The order backlog at the end of the review period was EUR 58.2 million (2019: 53.2), which shows an increase of 9%
• Innofactor got several significant orders in the third quarter, for example,
  • Consulting and maintenance services for Senate Properties, approximately EUR 1.0 million (not yet in the order backlog at the end of the review period)
  • The document management system for Finnish Transport and Communications Agency Traficom, approximately EUR 1.0 million (not yet in the order backlog at the end of the review period)
  • The customer management system for Tampereen korkeakoulusäätiö, approximately EUR 0.7 million (not yet in the order backlog at the end of the review period)
  • The net sales were approximately EUR 47.9 million (2019: 46.8), which shows an increase of 2.5%
  • The operating margin was approximately EUR 5.6 million (2019: 3.5), which shows an increase of 58%
  • The operating profit was EUR 2.1 million (2019: 0.3), which shows an increase of 566%
    
    

January-September 2020 in brief:

• The net sales were approximately EUR 47.9 million (2019: 46.8), which shows an increase of 2.5%
• The operating margin was approximately EUR 5.6 million (2019: 3.5), which shows an increase of 58%
• The operating profit was EUR 2.1 million (2019: 0.3), which shows an increase of 566%

Key figures of the group, IFRS
		Jul 1-Sep 30, 2020	Jul 1-Sep 30, 2019	Change		Jan 1-Sep 30, 2020	Jan 1-Sep 30, 2019	Change
Net sales, EUR thousand		14,005	13,968	0.3%		47,913	46,767	2.5%
Growth of net sales		0.3%	1.4%			2.5%	-1.0%
Operating result before depreciation and amortization (EBITDA), EUR thousand*		1,559	1,535	1.6%		5,579	3,532	58.0%
percentage of net sales*		11.1%	11.0%			11.6%	7.6%
Operating profit/loss (EBIT), EUR thousand*		397	252	57.5%		2,097	315	565.7%
percentage of net sales*		2.8%	1.8%			4.4%	0.7%
Earnings before taxes, EUR thousand*		26	42	-36.8%		1,099	-259	524.6%
percentage of net sales*		0.2%	0.3%			2.3%	-0.6%
Earnings, EUR thousand*		27	132	-79.8%		1,505	503	199.3%
percentage of net sales*		0.2%	0.9%			3.1%	1.1%
Order backlog		58,181	53,167	9.4%		58,181	53,167	9.4%
Net gearing*		66.7%	84.6%			66.7%	84.6%
Net gearing without IFRS 16		48.1%	60.5%			48.1%	60.5%
Equity ratio		43.5%	40.2%			43.5%	40.2%
Equity ratio without IFRS 16		45.8%	44.6%			45.8%	44.6%
Active personnel on average during the review period****		545	535	1.9%		549	535	2.6%
Active personnel on average at the end of the review period****		546	542	0.7%		546	542	0.7%
Earnings per share (EUR)		0.0007	0.0036	-80.5%		0.0402	0.0013	3,088.0%

*) The handling of lease liabilities in accordance with IFRS 16 had a positive effect of EUR 493 thousand (2019: 645) in the operating margin (EBITDA) in July 1-September 30, 2020, and an effect of EUR 1,501 thousand (2019: 1,265) in the operating margin (EBITDA) in January 1-September 30, 2020.

**) In accordance with IFRS 3, the operating result in July 1-September 30, 2020, includes EUR 473 thousand (2019: 507) and in January 1-September 30, 2020, EUR 1,420 thousand (2019: 1,522) in depreciations related to acquisitions, consisting of allocations of the purchase price to intangible assets.

***) Exchange rate changes related to the Group's internal debts (due to the weakened rate of the Swedish krona and Norwegian krone in relation to euro) results in an exchange rate loss of EUR -474 thousand in accordance with IFRS in January 1-September 30, 2020, but this loss does not affect the cash flow, only the result for the financial period, the Group's balance sheet and the equity ratio. In July 1-September 30, 2020, an exchange rate loss of EUR 177 thousand occurred.

****) The Innofactor Group monitors the number of active personnel. The number of active personnel does not include employees who are on a leave of over 3 months.

Innofactor's future outlook for 2020

Innofactor's net sales and operating margin (EBITDA) in 2020 are estimated to increase from 2019, during which the net sales were EUR 64.2 million and the operating margin was EUR 5.1 million.

CEO Sami Ensio's review: The excellent September resulted in good profitability for Q3 - the most significant negative effects of the coronavirus on business are estimated to be over

The net sales in the third quarter of 2020 were EUR 14.0 million, which shows an increase of 0.3 percent compared to the previous year. The net sales grew in Finland, but decreased in other countries due to the effects of the coronavirus. The operating margin (EBITDA) grew by 1.6 percent from the previous year and was EUR 1.6 million (11.1 percent of the net sales), which is a historical record for Innofactor on the third quarter. In the third quarter, also the order backlog grew to a record-breaking amount and was EUR 58.2 million at the end of the quarter, which shows an increase of 9.4 percent compared to the corresponding time in the previous year.

The net sales in the first 9 months of 2020 were EUR 47.9 million, which shows an increase of 2.5 percent compared to the previous year. The net sales grew in Finland, but decreased in other countries due to the effects of the coronavirus. The operating margin (EBITDA) grew by 58.0 percent from the previous year and was EUR 5.6 million (11.6 percent of the net sales), which is also a historical record for Innofactor compared to previous comparison periods.

As a whole, the negative business effects due to the coronavirus in the third quarter were approximately as estimated. On a monthly level, August was weaker than expected and bore the brunt of the effects of the epidemic. On the other hand, September was better than expected, and this development is expected to strengthen towards the end of the year. The coronavirus situation still did not affect Innofactor's ability to produce services for its customers. Since the coronavirus situation got worse after the summer, our employees returned to mainly working remotely on August 7, 2020. In the Nordic countries in the third quarter, Innofactor received a total of approximately EUR 0.2 million in support from the states due to the coronavirus.

Innofactor strengthens its Business Productivity unit focused on Microsoft Dynamics and analytics business operations in Finland. Anu Pitkänen will start as the new leader of the unit on November 1, 2020. Anu has over 20 years of experience on corresponding business operations both as a provider and customer. We believe that the Microsoft Dynamics business operations have excellent growth potential in the coming years. I wish to warmly welcome Anu to Innofactor.

Innofactor updated its strategy during Q3. No significant changes were made to the strategy, but some parts of it were sharpened, for example, by writing out the purpose of Innofactor for the first time. The updated strategy is presented in more detail in the section 'Strategy and its realization in the review period.' As part of the strategy process, Innofactor also confirmed the company's updated dividend distribution policy. According to the renewed policy, the aim of the Board of Directors is to pay a dividend regularly each year. The goal is to pay about half of the result for the financial period in dividends, taking into account the company's financial position, possible corporate reorganizations and other development needs. I am very happy that, especially now on our 20th anniversary, we are able to change our dividend distribution policy in such a way that it makes distribution of dividends more probable in the future as this is what several of our shareholders have wished in past years.

In the long term, we believe that the digital step the society is taking due to the coronavirus epidemic will increase Innofactor's possibilities to grow its business operations. The abilities of a modern digital organization will be even more important for our customers in the future. It is also possible that some of our customers will transfer some of their operations back to the Nordic countries in order to be closer to their customers. This would have a favorable effect as regards the business model of Innofactor's chosen strategy based on Nordic specialists. We also believe that Microsoft's position has strengthened during the coronavirus epidemic. We believe in our chances of increasing our market share.

Innofactor's vision is to be the leading Nordic implementer of digital transformation in the Microsoft ecosystem. We believe even stronger in our chosen Nordic strategy and in reaching our long-term goals in the world after the coronavirus epidemic. Innofactor is still actively looking for new strategic partnerships. The Group's goal is to grow both organically and through acquisitions. The coronavirus epidemic and the time after it may provide new and even surprising opportunities for this, and those may require fast actions. In view of this, we have drafted a separate plan, started to actively monitor the situation and, at the end of April, acquired EUR 3.0 million in additional funding in the form of a senior loan from a major Finnish pension insurance company to support our possible projects for gaining growth.

Strategy and its realization in the review period

Innofactor updated its strategy during Q3. No significant changes were made to the strategy, but some parts of it were sharpened. The updated strategy is presented in brief below.

Our purpose: Innovating to make the world work better

Our mission: Driving the modern digital organization

Our vision:Leading Nordic digital transformation partner in the Microsoft ecosystem

Our strategic choices:

• The best Nordic professionals
• Productized and specialized offering
• Proactive and agile way of working
• Innovation with top customers

Our values:

• Accountability
• Empowerment
• Innovation
• Customer

Our working principle: Our principle is to put people first in everything we do. We want to create solutions that make people's everyday work and life run smoothly and bring a smile to their faces.

Our long-term financial goals:

• To achieve annual growth of about 20 percent, of which majority is intended to be achieved by organic growth
• To achieve about 20 percent EBITDA in relation to the net sales
• To keep the cash flow positive and secure good financial standing in all situations.

Innofactor's net sales in January-September 2020 were EUR 47.9 million (2019: 46.8), which shows an increase of 2.5 percent compared to the previous year. The net sales grew in Finland, but decreased in other countries due to the effects of the coronavirus. The goal of getting the net sales to grow is also supported by the record-breaking order backlog of EUR 58.2 million (2019: 53.2). Innofactor has plans on actions that will make the annual growth of 20 percent possible in the next few years. The effects of the coronavirus epidemic and Innofactor's strengthened financing position may also provide new possibilities for inorganic growth in the future. For this reason, Innofactor acquired EUR 3.0 million in additional funding in the form of a senior loan from a major Finnish pension insurance company at the end of April 2020.

In the review period, the operating margin (EBITDA) grew by 58.0 percent from the previous year and was EUR 5.6 million (11.6 percent of the net sales). As regards profitability, Innofactor was able to improve its performance substantially. Innofactor has plans on actions that will make the annual growth of 20 percent possible in the next few years. Possibilities for improving profitability can be found especially outside of Finland, where there have been significant challenges to the profitability especially during the coronavirus epidemic.

Innofactor's operating cash flow in the review period of January 1-September 30, 2020, was EUR 4.9 million (2019: EUR 3.4 million), and the equity ratio at the end of the review period was 43.5 percent (2019: 40.2 percent). The strong operating cash flow and financial position support Innofactor's strategic goal of profitable growth and securing solid financial standing in all situations.

Espoo, October 27, 2020

INNOFACTOR PLC

Board of Directors

Additional information:
CEO Sami Ensio, Innofactor Plc
Tel. [phone]
[e-mail]

Briefings concerning the Interim Report January 1-September 30, 2020

Innofactor will publish the half-yearly report for January-September on Tuesday, October 27, 2020, at around 9:00 Finnish time.

A video conference in Finnish concerning the interim report will be held for media, investors and analysts on the same day at 10:00 Finnish time. The corresponding video conference in English will be held at 12:00 Finnish time. The report will be presented by CEO Sami Ensio and CFO Markku Puolanne.

Please register for the conferences beforehand by sending email to [e-mail]. The link for participating will be sent to the registered persons on the previous day.

The presentations will be available on Innofactor's web site after the conferences.

Distribution:
NASDAQ Helsinki
Main media
www.innofactor.com

Innofactor
Innofactor is the leading driver of the modern digital organization in the Nordic Countries for its over 1,500 customers in commercial, public and third sector. Innofactor has the widest solution offering and leading know-how in the Microsoft ecosystem in the Nordics. Innofactor has over 500 enthusiastic and motivated top specialists in Finland, Sweden, Denmark and Norway. In 2015-2019, the annual growth of Innofactor's net sales has been approximately 10 %. The Innofactor Plc share is listed in the technology section of the main list of NASDAQ Helsinki Oy. www.innofactor.com #ModernDigitalOrganization #PeopleFirst #CreatingSmiles

Attachment: Innofactor Plc's Interim Report for January 1-September 30, 2020 (IFRS)